How long before nation states buy bitcoin?
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This is critical to try understand. The 'desired' 2% inflation rate is a peculiarity.
It is all well and good in a stable economic environment to pursue such a policy.
But we are not in a stable economic environment, the global economy has had a massive shock.
Perhaps targeting a 10% or 20% inflation rate would be more apt in fighting off a deep prolonged deflationary period?
There is also a simple view of what inflation is - increase the money supply and prices will begin to rise as more money chases fewer goods.
This is too basic. It is evident in asset prices like fixed quantities of stocks, or slow production of housing. But technological advances in science, particularly with food production, means we live in times of abundance. In a globalised economy the supply chains are vast ensuring a much feared toilet roll shortage never materialised with the outbreak of Covid.
The digitalisation of much of what we consume is also a leading factor in deflation.
There was a time I would spend 0.30punts on a bus trip into town to flick through the record albums pressed on vinyl, in cardboard sleeve, wrapped in cling film. All the production, design, distribution, retail is gone. Replaced by digital versions, much more economically efficient with technological advances and the Internet are ripping through industry after industry.
Here is a theory, with the good ship human economy owing itself some three times more than it values itself, CBs should raise interest rates to induce an inflationary effect.
Huh?
Yes, raise interest rates and the cost of borrowing will rise, those companies that strategise on increasing market share by taking on more debt will feel their balls being squeezed in the short to medium term. In the medium to long-term it will open the door for market competition entrepreneurship. But with less money (or more expensive money) chasing greater market share, only those with healthy balance sheets can compete and sustain themselves, driving out inefficient debt-ridden monopolists.
Of course there will be a cost to all of this, inflation - but that is the aim of CBs.
Negative interest rates will induce hoarding, in cash.
If I have €100 in a bank account and in a years time it will be €98. I will keep my €100 in cash, it will still be €100 in a years time.
I see the end of retail banking. In a world of CBDC and the Internet, if the prevailing interest rate is 5%, why would I borrow 10% from a retail bank? There is simply no need for them if a CB can deposit money into my account online at 5%.
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Nor was using the NPRF to plug government budget deficits, until the law makers changed the rules.
That is all it would take, a simple rule change in legislation and the NTMA could buy and hold bitcoin.
NoRegretsCoyote
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Primary legislation is rarely simple
A Statutory Instrument, defining cryptocurrency as a legitimate asset within the scope of the NTMA remit, is not difficult at all.
NoRegretsCoyote
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@WolfeTone
An SI is not primary legislation.
AFAIK the NTMA act doesn't provide for such type of SI.
An SI is not primary legislation.
AFAIK the NTMA act doesn't provide for such type of SI.
It doesn't need primary legislation. The primary legislation giving existence, function and authority to the NTMA already exists.
There is literally 13 SI's already associated with the primary legislation for other matters.
Duke of Marmalade
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You obviously missed my whole point. I was talking about a world where there was no cash. I won't bother delving too deeply into the rest of your post as it seems, as others have remarked, that you are a tad out of your depth on these matters. Stick to the UI debate, easy stuff that.
Ok, I missed that point. But probably because I pointed out to you that it can only happen within the parameters of a robust and sound monetary system. That's not going to happen.
As you stated, you didn't quite get that.
A cashless society in a monetary system controlled and directed by CB policy is a delusion.
Ah, don't give up on me Duke, I'm always willing to learn and understand why conventional economic theory of lowering interest rates bringing forth the holy grail of the 'desired' 2% inflation rate has been an abject failure, for 6-10yrs in US and Europe.
Could it be, that CB's are simply out of their depth and can see no other way to keep social order and restore bankrupt over indebted economies to rude health other than flood economies with cheap, and now free money?
Be sure to point me to the economic school of thought that came up with that one.
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If memory serves, there are a couple of states in the US that will accept payment in crypto - alongside the canton of Zug in Switzerland. That said, I wouldn't let that concern you too much. You can now organise to receive payments in crypto without the payer having to mess about with that conversion - through services like Jack Maller's Strike. They can also send your crypto and convert it with little slippage - and the tax man (or whomever else) gets paid. Slippage is going to decrease when it comes to exchanging between digital assets and between digital assets and fiat (soon enough to become purely digital).
For individuals working with crypto, the last 18 months has seen the introduction of a gazillion visa products that facilitate spending crypto (as with a view towards their own survival, visa are embracing the change that's coming rather than fighting against it).
I'm not sure why people make a big deal about any difficulty paying taxes with crypto. Yes, tax authorities and their government friends can insist on the use of fiat currency when they have a gun to your head. Bitcoin was started by a couple of guys on an online message board with no marketing spend, no guns, etc - just code... and in 13 years its gone from zero to a trillion dollar asset. Paying taxes is just one of many transactions individuals and businesses need to make. I wouldn't give it a second thought.
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Duke of Marmalade
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That is what my whole last few points were about. The real possibility that we could dispense with physical cash and its implications for monetary policy.
That you missed this central point may of course be due to my pitiful communication skills.
Yes, and my response to that is that it could only work if operating within a sound and robust monetary system where the rules were not subject to change at the whim of policy makers in a CB.
Without that, there will always be a demand for alternative money.
Like gold. You can't change gold, it is what it is. Its supply may increase, but that requires investment and heavy energy use. Increasing the supply of gold is a slow burner, unlike fiat currency. Noting that some 20% of US dollar supply has come into existence in the last decade or so.
So while a total cashless society may emerge, there will always be a demand for alternative forms of money while monetary systems are subject to the policy decisions of CBs.
Your brave new world is already dead in the water I'm afraid to say.
Duke of Marmalade
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Wolfie I am trying to open your mind. You are obsessed with money's store of value attribute. People are understandably wobbly on that aspect these days and so look for alternatives such as bitcoin. But try and picture money as purely a medium of exchange, a unit of account, a ledger recording your debits and credits in the daily exchange for goods and services. Nobody in their right minds holds it as a long term store of value. Why? Coz the people who supply it have stated their aim to ensure it loses value at 2% per annum. Any surplus money available for savings should be immediately used to purchase investments/assets.
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No disrespect Duke, but aside from the actual (diminishing) presence of physical cash, what you are describing is already happening to a large extent - see bonds, stocks, property, bitcoin.
If we get to an absolute cashless position, with a guaranteed diminishing return of 2% pa on bank balances, then correct, the overwhelming impetus for Joe and Josephine public would be to invest in assets and other investments. Of course, any returns on assets through rents and dividends will have to be spent or re-directed back into assets and other investments, otherwise they will lose 2%pa value sitting on a bank deposit account.
All of this will herald the greatest asset bubble of all time. Those who own the assets can sit back and fatten up, gorging on the "shrewdness" of their investing nous. Those without assets - those who who income is enough to support their daily necessities, or who eventually get squeezed out in this system - can run the hamster wheel, supporting this charade, being bled dry on the basis that those that control the money supply have stated that the value of the return on their labour shall diminish 2%pa.
What you are signalling Duke, is recipe for revolt.
But I don't want to be too hard on you. I don't think you are alone in this type of thinking. In fact I think it is a useful reminder to me of how pervasive this type of thinking is in general, and how rooted it actually is this monetary system.
I had sold out a stake in bitcoin to retrieve my initial outlay and profit some.
But I'm starting to think at $60,000, it is starting to look cheap once more.
DublinHead54
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Oh, what's the specifics on that?
I wasn't suggesting they could now, but given they invest in Equities etc that they could get approval to invest in BTC. I wasn't aware of a legal mandate that prevents them ever investing in it.
NoRegretsCoyote
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The NTMA's investment mandate is here. I don't see how a virtual asset that pays no interest that has a material chance of being worth zero in the medium term is consistent with that mandate.
It's hard not to see how a virtual asset, appreciating on average 200% a year, over the last 10yrs, would not qualify under section 39 (4) of the Act.
Section 39 (1), (2), (3) are subjective. Only when we get to subsection (4) is there some meat on the bone.
"(4) In determining what is an appropriate rate of return to seek to secure for the purposes of subsection (2) or (3), the Agency may aim for different levels of return for different investments and types of investments provided that it seeks to secure, over the long term, in relation to the assets of the Fund (taken as a whole) a rate of return greater than the annual interest cost of the general government debt (that is, the total gross debt at nominal value of the general government of the State, as arrived at in accordance with Council Regulation (EC) No. 479/2009 of 25 May 2009 1 as amended by Council Regulation (EU) No. 679/2010 of 26 July 2010 2) averaged over 5 years."
First point - although the Act is 2014, realistically crypto and bitcoin would have been light years from the minds who compiled it.
Second - it is completely open ended and open to interpretation.
The NTMA may operate a standard, traditional, conventional approach to investing funds and civil servants are notorious for not adopting change preemptively . They tend, with reasonable qualification, to wait until change foists itself upon them before acting.
Third point, (5) The assets of the Fund may be held or invested in or outside the State.
Now when Leo says "we have no gold", who doesn't believe him? There is no Irish Fort Knox.
But, according to an answer by MoFinance, Paschal (arguably one of the best performing Ministers) to Pearse Doherty (arguably the best performing opposition in 20yrs or more), Ireland does have its store of gold, but it is held with BoEngland.
Paschal to Pearse
Fourth point, (6) All income, capital and other benefits received in respect of holdings or investments shall be paid into the Fund.
To me, it is an obvious open goal. There is no restriction, whatsoever, on legal grounds, that stops the NTMA buying and holding bitcoin.
If the NTMA were to buy bitcoin, no doubt opposition politicians would protest at this unconventional use of funds. Politically, it is a system of democratic opposition that prevents government agencies from jumping ahead of itself making preemptive decisions.
Only when democratic opposition is voiceless and unrepresented does the government impose its will unimpeded - NAMA for example.
However, legally, there is nothing to stop the NTMA owning bitcoin. Politically yes, but legally no.
NoRegretsCoyote
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Bitcoin has had spectacularly negative returns over certain time horizons too.
Yes, held by the Central Bank in the context of reserves management. If an Irish state entity ever purchases bitcoin it will be the Central Bank as part of holding foreign exchange reserves (but I doubt it).
Bitcoin will not be hold by the NTMA under its investment mandate which is primarily to support economic activity in the state.
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